It's not just Millennials: Why 2023 will be tough for California’s wine industry

Wine consumption in the U.S. has been slowing down for years.

Wine consumption in the U.S. has been slowing down for years.

Yalonda M. James/The Chronicle

The 2023 forecast for the U.S. wine industry is here, and it doesn’t look sunny.

Wine consumption in this country continues to grow at a slower and slower pace. Young people are still drinking a lot less wine than older generations. The rising cachet of wellness culture has rendered wine (and alcohol more generally) into a kind of villain.

And now, on top of it all, a recession may be looming .

These are some of the takeaways from Silicon Valley Bank’s State of the U.S. Wine Industry Report. The study, published Wednesday, is one of the most closely watched barometers of this $61 billion national industry.

None of the report’s major themes are surprising — they are continuations of trends that have been brewing for years. But the current economic climate, coupled with the ongoing slowdown in wine consumption, presents new challenges.

“Nobody in the industry likes bad news,” said Rob McMillan, the founder of Silicon Valley Bank’s wine division and the author of the report. He hopes the data will be a wake-up call to the industry, which is consistently “missing the mark,” he said.

One of McMillan’s soapbox issues over the years has been the wine industry’s failure to win over the youngsters — Millennials and, now, Zoomers , who remain less interested in wine than their parents were at their age.

“Wine was last cool with young consumers 30 years ago,” McMillan writes in the report. “The category back then spoke of … outward personal success, short breaks for family gatherings and the imaginary free time that would be taken with the money earned by working.”

Wine, to these younger drinkers, is a has-been, replaced by newer attractions like craft cocktails and, increasingly, nonalcoholic drinks .

Of course, young people buy some wine. And when they do, they spring for the top shelf. “To the extent they do buy, they’re buying the most expensive bottles,” McMillan said. “But they’re buying a single bottle, and it’s infrequent.”

In fact, the priciest bottles are showing the most sales growth across the board, not just among younger consumers. (I wrote about that, and the fact that most West Coast wineries are planning to raise their prices this year, in a separate story this week.)

One reason for optimism: If an economic recession does come, McMillan believes the wine industry is well prepared for it.

When wineries have excess inventory and a recession hits, leading people to cut back on wine purchases, wineries are forced to slash their bottle prices. This has longterm effects for the industry, because when the recession ends, customers are still expecting those discounted prices.

But wineries don’t have excess inventory right now. The last three grape harvests in California have been small — in fact, in 2020, many producers made no wine at all because of wildfire damage. “This time, if we have a recession, we won’t have to be in that place where we have to discount,” McMillan said.

Those discounted prices sure would have been nice for wine buyers like you and me — especially given that California wine prices are poised to accelerate in 2023 — but that’s good news for this troubled industry.